Question 1

AZ Best,Inc.'s corporate charter allows it to issue 1,500,000 shares of common stock.In 2011,its first year of business,the company sold 200,000 shares of common stock.In 2011,the company bought back 5,000 shares to be held as treasury stock.At December 31,2011,how many shares of common stock are issued?

Accepted Answer

The number of shares issued refers to the total number of shares that have been sold to shareholders, which in this case is 200,000 shares. The purchase of treasury stock reduces the number of shares outstanding but does not affect the number of shares issued.

Question 2

Preferred stock offers shareholders the right to ________.

Accepted Answer

Preferred stockholders have priority over common stockholders in the distribution of assets in the event of bankruptcy and typically receive dividends before common shareholders.

Question 3

Which stock offers shareholders preference in receiving dividends?

Accepted Answer

Preferred stock offers shareholders preference in receiving dividends over common stock. Preferred stockholders are typically paid a fixed dividend before any dividends are distributed to common stockholders.

Question 4

Cartier,Inc.'s corporate charter authorizes it to sell 1 million shares of $0.50 par value common stock.As of December 31,2011,the company had sold 500,000 shares for $4 each.Cartier has 20,000 shares of treasury stock that cost $100,000.On the December 31,2011 balance sheet,the number of shares issued is ________ shares.

Accepted Answer

The number of shares issued is the total number of shares sold plus the shares of treasury stock, which have been taken out of circulation. Therefore, the number of shares issued is 500,000 (shares sold) + 0 (shares in treasury stock) = 500,000 shares.

Question 5

In exchange for stock,corporations may receive ________.

Accepted Answer

When a corporation issues stock, it receives cash or other assets in exchange. It does not receive earnings or income from issuing stock, and treasury stock refers to the corporation's own repurchased shares, not shares issued to new shareholders.

Question 6

A monetary value assigned to and printed on each share of stock is called ________.

Accepted Answer

Par value is the monetary value assigned to each share of stock, often set at a low amount such as $0.01 or $0.001. This value is printed on the stock certificate and helps establish a minimum value for the shareholder's investment. Additional paid-in capital refers to the amount of money received from shareholders that exceeds the par value of the stock, while paid-in capital is the total of both par value and any additional paid-in capital. Retained earnings refer to the portion of a company's profits that are kept within the company rather than distributed to shareholders as dividends.

Question 7

Stock that has been sold and then repurchased by the issuing corporation is called ________ stock.

Accepted Answer

Treasury stock is stock that has been sold and then repurchased by the issuing corporation. A is incorrect because authorized stock refers to the maximum number of shares a corporation is allowed to issue, not stock that has been repurchased. B is incorrect because issued stock is any stock that has been sold by the corporation, not just repurchased stock. C is incorrect because outstanding stock is the total number of shares that have been sold and are currently held by shareholders, not just the repurchased stock.

Question 8

The number of shares of stock a corporation may issue when a corporation is formed is called ________ shares.

Accepted Answer

Authorized shares refer to the maximum number of shares a corporation can issue, which is determined when the corporation is formed. Issued shares are the number of shares that have actually been issued to shareholders, while outstanding shares are the shares that are currently held by shareholders (excluding treasury shares). Treasury shares are shares that have been repurchased by the corporation and are held by the corporation as an asset.

Question 9

Stock in the hands of shareholders is called ________ stock.

Accepted Answer

Outstanding stock refers to the shares that are currently in the hands of shareholders and not repurchased by the company. Authorized stock represents the maximum number of shares a company is allowed to issue, while par value refers to the nominal value of a share set by the company. Treasury stock refers to shares that the company has repurchased and is holding in its own treasury.

Question 10

________ is the stock sold to the public.

Accepted Answer

Issued stock refers to the shares of stock that have been sold to the public, as opposed to authorized stock (which is the maximum number of shares a company is allowed to issue) or outstanding stock (which includes both issued shares and shares held by the company itself, or treasury stock).

Question 11

Cartier,Inc.'s corporate charter allows it to sell 1 million shares of $0.50 par value common stock.As of December 31,2011,the company had sold 500,000 shares for $4 each.Cartier has 20,000 shares of treasury stock that cost $100,000.On the December 31,2011 balance sheet,the number of shares authorized is ________ shares.

Accepted Answer

The authorized shares are the maximum number of shares that a company can legally issue, which is stated in its corporate charter. In this case, Cartier, Inc.'s corporate charter allows the company to sell 1 million shares of $0.50 par value common stock. Therefore, the number of shares authorized is 1,000,000. The fact that the company has sold 500,000 shares and has 20,000 shares of treasury stock does not change the number of shares authorized.

Question 12

The state charter of Vest Corporation allows the corporation to sell 500,000 shares.Vest has issued 425,000 shares of stock.There are 15,000 shares of treasury stock.The number of outstanding shares is ________ shares.

Accepted Answer

The outstanding shares are the issued shares minus the treasury shares, so the calculation would be: 425,000 - 15,000 = 410,000. Therefore, option B is the correct answer.

Question 13

The owners of common stock do NOT have the specific right to ________.

Accepted Answer

Owners of common stock have the right to vote for members of the board of directors, share in the corporation's earnings, and share in any assets left when a company declares bankruptcy. However, they do not have the right to receive dividends before preferred shareholders; preferred shareholders have priority over common shareholders in the distribution of dividends.

Question 14

Paid-in capital includes ________

Accepted Answer

Paid-in capital includes the initial capital invested by the shareholders (capital stock) as well as any additional amounts paid by investors to purchase shares above the par value (additional paid-in capital). Retained earnings and treasury stock are not part of paid-in capital.

Question 15

Contributed capital includes ________.

Accepted Answer

Contributed capital includes both capital stock and additional paid-in capital. Capital stock represents the par value of the stock issued, while additional paid-in capital represents the amount received in excess of par value. Retained earnings, on the other hand, are not considered as part of contributed capital.

Question 16

The owners of common stock do NOT have the specific right to ________.

Accepted Answer

While common stockholders have the right to vote for members of the board of directors and to share in the corporation's earnings, they do not have the specific right to automatically receive dividends each year. The decision to pay dividends is ultimately up to the board of directors. Additionally, while common stockholders can purchase more shares when a corporation issues more stock, they do not have an automatic right to do so.

Question 17

The owners of ________ stock have the specific right to vote for members of the board of directors.

Accepted Answer

Only common stockholders have the right to vote for members of the board of directors. Preferred stockholders do not have this right. Treasury stock refers to shares of a company's own stock that it has reacquired and is holding in its own treasury.

Question 18

AZ Best,Inc.'s corporate charter allows it to issue 1,500,000 shares of common stock.In 2011,its first year of business,the company sold 200,000 shares of common stock.In 2011,the company bought back 5,000 shares to be held as treasury stock.At December 31,2011,how many shares of common stock are authorized?

Accepted Answer

The question asks for the number of authorized shares, which is stated in the corporate charter as 1,500,000 shares. The fact that the company sold 200,000 shares and bought back 5,000 shares does not affect the number of authorized shares.

Question 19

Investors purchase preferred stock because preferred ________.

Accepted Answer

Preferred stock is named as such because it has special rights and preferences over common stock. One of these preferences is a specified annual dividend payment. This dividend is typically paid out before any dividends are paid to common shareholders, and the dividend payment is usually fixed or calculated as a percentage of the stock's par value. This makes preferred stock an attractive investment option for those who want a steady stream of income without the risks associated with common stock.

Question 20

AZ Best,Inc.'s corporate charter allows it to issue 1,500,000 shares of common stock.In 2011,its first year of business,the company sold 200,000 shares of common stock.In 2011,the company bought back 5,000 shares to be held as treasury stock.At December 31,2011,how many shares of common stock are outstanding?

Accepted Answer

Outstanding shares of common stock = Total shares issued - Treasury Stock

Total shares issued = 200,000 shares
Treasury stock = 5,000 shares

Therefore, outstanding shares of common stock = 200,000 - 5,000 = 195,000 shares.

Quiz 8: Accounting for Shareholders Equity

Preferred stock offers shareholders the right to ________.

Which stock offers shareholders preference in receiving dividends?

In exchange for stock,corporations may receive ________.

A monetary value assigned to and printed on each share of stock is called ________.

Stock that has been sold and then repurchased by the issuing corporation is called ________ stock.

The number of shares of stock a corporation may issue when a corporation is formed is called ________ shares.

Stock in the hands of shareholders is called ________ stock.

________ is the stock sold to the public.

The state charter of Vest Corporation allows the corporation to sell 500,000 shares.Vest has issued 425,000 shares of stock.There are 15,000 shares of treasury stock.The number of outstanding shares is ________ shares.

The owners of common stock do NOT have the specific right to ________.

Paid-in capital includes ________

Contributed capital includes ________.

The owners of common stock do NOT have the specific right to ________.

The owners of ________ stock have the specific right to vote for members of the board of directors.

Investors purchase preferred stock because preferred ________.